AFA INVESTMENT FUND PTY LTD - [2023] SASC 48

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
AFA INVESTMENT FUND PTY LTD
[2023] SASC 48
Reasons for Decision of the Honourable Justice Bampton
EQUITY - TRUSTS AND TRUSTEES - APPLICATIONS TO COURT FOR ADVICE AND AUTHORITY
The applicant as trustee of a trust established by a deed of trust made on 11 November 2019 sought urgent judicial advice pursuant to s 91 of the Trustee Act 1936 (SA) regarding a provisional decision to vary or amend the trust deed to substitute a new legal entity for the beneficiary of the trust – where the existing beneficiary, a membership association of financial planners and advisors, was proposing to merge with another membership organisation of financial planners and advisors – where the merged entity would be substitute sole beneficiary of the trust – whether applicant had power pursuant to the trust deed to vary or amend the trust deed – whether the applicant would be justified in exercising any such power of variation – whether the proposed exercise of power is proper
HELD: The applicant has the power conferred by the trust deed to vary or amend the trust deed as proposed and the proposed exercise of the power is proper.
Trustee Act 1936 (SA) s 91; Uniform Civil Rules 2020 (SA) r 232.2; Administration and Probate Act 1919 (SA) s 69, referred to.
Burke v Public Trustee for the State of South Australia [2022] SASCA 64; Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198; Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; Re HEST Australia Ltd (2021) 66 VR 338; Application by NGS Super Pty Ltd atf NGS Super [2021] NSWSC 1694; Woolworths Group Ltd v Pinnacle Liquor Group Pty Ltd, re Woolworths Group Ltd [2019] FCA 1810; Kearns v Hill (1990) 21 NSWLR 107; Society of Lloyd’s v Robinson [1999] 1 WLR 756; Re Highcroft Trust [2008] NZHC 2019; Re McGowan and Valentini Trusts (2021) 63 VR 449, considered.

AFA INVESTMENT FUND PTY LTD
[2023] SASC 48
Civil: Application

BAMPTON J: AFA Investment Fund Pty Ltd (“the applicant”) is the trustee of a trust established by a deed of trust made on 11 November 2019 between Andrew Mitchard[1] and AFA Investment Fund Pty Ltd (“the trust deed”) and named by that deed the AFA Investment Trust (“the trust”). The beneficiary of the trust is the Association of Financial Advisers Ltd (“the AFA”). The AFA is a membership association of financial planners and advisors for whom the applicant holds money on trust (“the trust fund”).
[1] Andrew Mitchard, a solicitor, is named in the trust deed as the settlor of the trust. As a solicitor he was acting on instructions to facilitate the creation of the trust.
On 14 February 2023, the applicant filed an originating application seeking urgent judicial advice regarding a provisional decision to…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2023] SASC 48
Decision Date: 31 March 2023

CaseChat Overview and Summary

AFA Investment Fund Pty Ltd, the corporate trustee of the AFA Investment Trust, sought judicial advice from the Supreme Court of South Australia regarding its power to vary the trust deed to facilitate a proposed merger with the Financial Planning Association of Australia Limited (FPA). The trust deed established the AFA Investment Trust to manage and invest the surplus assets of the AFA to ensure its long-term viability for the benefit of its members. The proposed merger, intended to create the Financial Advice Association of Australia Ltd, required the AFA to be replaced as the sole beneficiary of the trust by the merged entity. This necessitated amending the trust deed, which the applicant proposed to do with the FPA's consent, subject to the approval of the AFA and FPA members. The applicant sought the court's advice on whether it had the power to exercise the variation clause in the trust deed and whether it would be justified in doing so.

The court was required to determine if it had jurisdiction to provide the requested judicial advice and whether the applicant possessed the power to vary the trust deed as proposed. Additionally, the court needed to ascertain if the applicant's proposed exercise of the variation power was justified, considering the trust deed's terms and the interests of the trust's beneficiaries. The court considered whether the proposed variation was necessary and whether it aligned with the trust's purpose and the beneficiaries' interests.

The court found that it had jurisdiction to provide the requested judicial advice under the relevant sections of the Trustee Act 1936 (SA) and the Administration and Probate Act 1919 (SA), and/or rule 232.2 of the Uniform Civil Rules 2020 (SA). The court concluded that the applicant had the power to exercise the variation clause in the trust deed, as outlined in clause 8.1(a) and (e), subject to the approval of the AFA members. The court was satisfied that the applicant's proposed exercise of the variation power was in good faith, had been genuinely considered, and aligned with the trust deed's purpose. Consequently, the court advised that the applicant would be justified in exercising the power of variation to substitute the FPA for the AFA as the beneficiary of the trust.

The court ordered that the applicant would be justified in exercising the power of variation pursuant to the terms of the trust deed to substitute the FPA for the AFA as beneficiary of the trust, subject to the approval of the AFA members. The court's decision provided the applicant with the necessary judicial advice to proceed with the proposed variation, facilitating the merger of the AFA and FPA.

Orders

Orders of the court

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Background

Background to the litigation

I now provide more detailed reasons.Background to the creation of the trust On 1 September 1994, the ALA Property Realisation Trust (“the original trust”) was established by deed for the benefit of Australian Lifewriters Association Pty Ltd (“the beneficiary”) with individuals as trustees. On 21 May 1998, the beneficiary changed its name to the AFA. In 2010, the original trust changed its name from ALA Property Realisation Trust to the AFA Investment Fund. On 3 October 2012, the applicant was appointed corporate trustee pursuant to a deed of variation and appointment. On 15 October 2012, the applicant was registered as a propriety company and its constitution was signed by consenting members. On 11 November 2019, the trust deed was reconstituted by a deed of settlement. The new trust fund was named the AFA Investment Trust[4] and was created for the benefit of the AFA.[4] FDN 3, Exhibit SPN03, Recital D. The trust deed provided the objective purpose of the trust was:[5]… to manage and invest the surplus assets of [AFA] to ensure the long term viability of [AFA] for the sole benefit of its current and future members.[5] FDN 3, Exhibit SPN03, Recital E. In November 2019, the AFA resolved and directed the applicant to pay the trust fund of the original trust to the new trust. On 31 January 2023, the AFA entered a deed (“merger deed”) with the Financial Planning Association of Australia Limited (FPA), also a membership organisation of financial planners and advisors, relating to a proposal for a merger between the two entities (“the proposed merger”). Recital A to the merger deed states:[6]The FPA and the AFA are two of Australia’s largest and longest standing associations of financial planners and advisers. Both the FPA and the AFA Boards have formed the view that substantial benefits will likely flow to their respective members from the [merger], including a stronger professional voice with a more efficient cost base.[6] FDN 3, Exhibit SPN06, Recital A. The proposed merger of the two entities was subject to various conditions precedent. It was proposed the merged entity would be known as the Financial Advice Association of Australia Ltd (or such other name to be resolved between the parties) (“the merged entity”). The proposed merger was also subject to the applicant providing the FPA with written confirmation that it had approved certain proposed amendments to the trust deed by a draft variation deed, with such amendments to have the effect of making the merged entity the sole beneficiary of the trust (“the proposed variation”). Of note the draft variation deed is drafted on the assumption this Court has given judicial advice to the effect the applicant is justified in exercising its powers under the trust deed to vary the trust deed to give effect to the proposed variation. The proposed variation was subject to the endorsement of the AFA members and the approval of the proposed merger by the AFA and FPA members. On 3 February 2023, the applicant’s board resolved to provisionally approve the proposed variation (“the trustee’s resolution”).

Evidence

Evidence Before The Court

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Decision

Reasons for decision

Counsel submitted it was also relevant to consider whether the proposed variation was necessary in the circumstances. On balance, it was submitted that I could be satisfied that the exercise of power was not an overreach of the exercise of power because of the uncertainties in the definition of “Beneficiary” in the trust deed and whether the merged entity would fall within the definition of “Default Beneficiary”. Counsel submitted that, in her view, the fact the uncertainties existed demonstrates the proposed exercise of power was not an overreach of the exercise of power. Rather, counsel contended, it was evidence of good consideration of the 3,000 plus members who are to benefit from the proposed variation.Conclusion Having regard to the affidavits filed in support of the application and the submissions, I was satisfied that the Court had jurisdiction under s 91 of the Trustee Act 1936 (SA) when read with s 69 of the Administration and Probate 1919 (SA), and/or rule 232.2 of the Uniform Civil Rules 2020 (SA) to hear the application and provide judicial advice to the applicant regarding the proposed exercise of power of variation pursuant to the terms of the trust deed. I was satisfied having regard to clause 8.1 (a) and (e) of the trust deed the applicant had the power to do what it proposed, noting that the proposed exercise of such power was pursuant to clause 8.1(c) subject to the approval of the AFA members which, upon provision of such approval, would endorse the proposed exercise of the power. I was also satisfied sufficient evidence and information had been placed before the Court to ascertain the propriety of the proposed exercise of power. I was of the view the proposed exercise of power was to be exercised in good faith, real and genuine consideration had been given to it, and it accorded with the purpose for which the power was conferred by the trust deed. Accordingly, I was satisfied the applicant would be justified in exercising the power of variation pursuant to the terms of the trust deed to substitute the FPA for the AFA as beneficiary of the trust.

Ratio Decidendi

Legal Principle Established

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